Edmund Tadros

Consumers could be slugged with a 37 per cent “internet tax” if the $1000 GST threshold on imported goods was lowered, says consumer group Choice.

The average overseas internet purchase of $38 would end up costing $56 if a UK-style tax processing fee is added on top of the 10 per cent GST, according to modelling by Choice.

This means most shoppers would end up paying more processing fee than GST because about three-quarters of all overseas internet purchases are worth less than $100.

Online shopping cost data

Choice chief executive Alan Kirkland said it would act as a strong disincentive to shop at overseas online stores. The group estimates it could cost consumers $823 million if the GST-free threshold was reduced from its current $1000.

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The local retail sector has long lobbied the federal government to reduce the threshold.

State treasurers, eyeing extra GST money, and federal Treasurer Joe Hockey will discuss proposals to lower the threshold at a meeting in March.

The sticking point has been how to collect the extra GST in a way that doesn’t cost more than it generates.

Choice argues in its pre-budget submission, where it details the modelling, that the federal government should not lower the threshold until it can prove the move would raise net revenue.

Treasury estimates that cutting the threshold for GST to zero would cost 66 per cent more than anything collected because authorities would have to check a lot of very low-value items.

Choice has modelled the cost to consumers of implementing part of the UK system where the tax is charged on imports worth more than £15 ($27.56) and the processing fee - Royal Mail charges users £8 ($14.70) - is passed onto consumers.

The retail lobby hit back at Choice, accusing the group of not understanding how the complete UK system works.

“I would reject (their conclusions) - it is premature to suggest that,” Australian National Retailers Association CEO Margy Osmond said.

“The Choice release illustrates how little they understand about how the UK system works.

“The vast bulk of packages in the UK have the tax collected by the online retailer.”

The association in its own pre-budget submission, argues for this type of system, where overseas retailers are made to collect GST for the government.

A similar regime was one recommendation in a federal Treasury taskforce on “low-value parcel processing”.

“This is a discussion about closing a loophole in the tax law that is a hangover from when nobody shopped online,” Ms Osmond said.

But Choice sees this proposal as another way to obstruct shoppers going online.

“There is a risk it involves excessive compliance costs in a way that prevents overseas businesses selling into Australia, thereby preventing consumers from enjoying the benefits that competition provides,” Mr Kirkland said.

“Any requirements we want to impose on overseas businesses end up acting like a tariff.

“Retailers are trying to not only impose additional costs but undermine the reason people shop online.

“Our research shows people like online shopping because the goods are delivered to the door. If that is undermined, then that’s a great way of pushing people into local stores.”